Mounting outflows, a ‘generational’ bottom and the latest jobs report

By Shawn Langlois

Flickr/jojo77

Is this what a bottom is supposed to feel like? Are we still recovering from a “generational” bottom? The way that market has been behaving lately has given rise to bottom banter, something we haven’t really talked much about, equity-wise, for years.

Of course, a few weeks does not a long-term trend make, but Thursday moon-shot aside, we’re starting to see some investors pull the trigger and lock in profits in a big way.

In fact, it’s been a decade since money left the market this fast. The daily outflows over the past 20 days have averaged $1.2 billion, according to Chris Puplova, portfolio manager at PFS Group. Prior to this, the worst outflow hit in early 2008, at $1.1 billion.

“The market’s bottom this week has the potential to be a significant bottom as we’ve seen signs of major capitulation by investors as evidenced by ETF fund flows in the world’s largest ETF,” Puplova wrote in his blog post.

It’s not like the money is flowing into other countries, either. Investors took out more than $12 billion from developing-nation equity funds in the past two weeks, per Morgan Stanley. That also is the biggest outflow since 2008. More on outflows here.

And it’s only going to get uglier, Mark Mobius told Bloomberg from Rio de Janeiro. “The negative sentiment is pretty much in place so you can expect a lot more selling,” said the man watching over some $50 billion in assets.

The economy:The jobs report has come and gone and the verdict: 113,00 jobs were added in January and that is not quite the 184,000 that was expected. Last month’s gains were revised, barely, up to 75,000, so expect more talk of weather and the taper blueprint.

The euro got kicked after a German constitutional court said it will refer the question as to whether the ECB’s bond-buying program is legal. In short, says FxPro’s Simon Smith, if the final ruling is that the program isn’t legal, then Draghi’s “whatever it takes pledge” starts to look dubious, pushing up bonds yields in the more financially troubled countries and sitting on the single currency.

The chart of the day: Don’t sweat this downturn. We’re still in the process of rebounding from “generational lows” that we may not revisit again. That’s the message Barry Ritholtz wrote about on Bloomberg and was picked up on by STA Wealth Management’s Lance Roberts, who made this chart. You can see where we stand against other generational lows and where we could be headed.

Roberts, however, says not so fast. The low is still between 18 and 24 months away. “With corporate earnings at record levels with increased dividend payouts, leverage at all time highs, investor sentiment pushing exuberance and valuations rich; it is likely that the next major market low will provide the reversion in market prices and fundamentals necessary to create a true ‘generational’ low,” he wrote.

STA Wealth

The call of the day:No one nails every call, but Jeremy Grantham, oil exec turned investment strategist, gets credit for two biggies, the Internet bubble and the housing collapse. Now he’s throwing water on fossil fuels, warning that they’re a sketchy waste of time and money. He said that coal and gas will definitely be replaced by the likes of wind and solar. “The question is only whether it takes 30 years or 70 years.” And land transportation will be powered by electricity, within a range of 20 to 40 years. “I have felt for some time that new investments today in coal and tar sands are highly likely to become stranded assets,” he said. Grantham went on to say how countries who are still focusing on fossil fuels “are walking into a trap,” including the “statistically certain” threat of earthquakes brought on by fracking.

Random reads: When I saw my technology-challenged brother-in-law geeking out on this app, I knew this one had to be huge. And it is. Weirdly.

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Need to Know (NTK) guides investors to the most important, insightful items required to chart a course ahead of each trading day. Anchored by lead writer Shawn Langlois, NTK will sift through the fire hose of news, commentary and data, from traditional and non-traditional sources, and extract what’s most essential. You can start reading NTK here as it begins publishing at approximately 6:30 a.m. ET, or sign up here to get a version in your email box every morning at approximately 8:45. a.m. ET.